Ferguson Warns: A Silicon Embargo Could Rock Markets Like the 1970s Oil Crisis — With Gold as the Big Winner
Sir Niall Ferguson Unpacks Trumponomics in Mining Forum Americas Keynote
World-renowned historian Sir Niall Ferguson has warned that the US is at risk of losing its status as a superpower in the absence of radical economic reform.
“Part of the challenge for a historian living and working in the United States today is to try to explain what is going on in this country and in the world, in historical perspective, because there's a lot of confusion and a lot of terrible historical analogies doing the rounds,” Ferguson said in a keynote address to the Mining Forum Americas in Colorado Springs.
Just as challenging as being a historian today is being an economist.
“You will know that it's been tough this year, because economics says that if the United States returns to the tariff policies of the 1930s, then very bad things should happen, and very bad things did happen in the first week of April when President Trump announced the reciprocal tariffs in the rose garden,” Ferguson said.
“Equities sold off quite dramatically in that first week of April and there was respite for markets when, thanks to Scott Bessen, the Treasury Secretary, the reciprocal tariffs were postponed.
“But you may have noticed that since they have been announced in trade deals or at least press releases, they've come in pretty close to where they were back on April 2, and yet the markets are touching historic highs for equity investors.
“It's almost been as great as it has been for you gold folks, so that's a problem for economists.”
Trump analogies
When it comes to Donald Trump, Ferguson urged people to resist facile historical analogies.
“I do not think it makes any sense at all to compare Donald Trump to Julius Caesar or Augustus Caesar or any Caesar,” he said.
Ferguson took particular issue with those who compared Trump to Hitler and Mussolini
“Let's try to park these obviously inflammatory analogies far off the scope or domain of political debate, because there are real and valuable historical analogies from which we can learn,” he said.
Ferguson noted that Trump had compared himself to William McKinley, the late 19th century president who was also a fan of tariffs.
“Tariffs have been entirely out of political fashion in this country since World War II, and President Trump has reasserted their centrality to economic policy in a way that has been out of consensus for two generations,” he said.
“Not only that, but you could say that his attitude to immigration is late 19th century. Even on monetary policy, Trump has a late 19th century vibe.
“So I would say that if you want to understand the roots of Trumpism, it makes sense to look at late 19th century America, not 1930s Germany.”
However, in the late 19th century, the US was an emerging economy and not the global superpower it is today.
US dominance waning?
Ferguson said if a great power consistently spent more on debt interest than on defence, then it wouldn’t be great for very much longer.
“Last year, interest payments on the federal debt exceeded the US defence budget, and if you look at the Congressional Budget Office projections, that is only going to get worse, so that plausibly, by the 2040s, we could be looking at spending twice as much on interest payments as we spend on defence,” he said.
“That doesn't bode well for the dominance of the United States in the international order.
“What does this imply? Well, one of the most striking features of imperial decline is that if your fiscal policy is broken, your currency will likely be next.
“The most likely trajectory for the US dollar, unless there's radical fiscal reform, is downwards, and this, of course, is why you're all so very fond of precious metals.”
Ferguson said it wouldn’t matter if there was no real competition for world domination.
“But the problem is there is very real competition in the form of the People's Republic of China,” he said.
“China is the most formidable economic rival the United States has ever faced.
“Not only that, but China is now, by far, the dominant manufacturing economy in the world and this has happened amazingly fast.
“Twenty years ago, US manufacturing value added was 2.6 times that of China today. China's manufacturing value added is twice that of the United States – this is an amazing reversal of fortune with profound geopolitical implications.”
In the 1990s, former US national security advisor Zbigniew Brzezinski warned that a coalition between China, Russia and Iran would be a dangerous scenario, but that was what the world was facing today, with the inclusion of North Korea.
“This is the context in which you have to understand the Trump Administration in its second term,” Ferguson said.
“It faces a radically different landscape from the one it faced eight years ago, and I want to suggest to you, that the key to understanding Trump is not McKinley, much less Caesar or Hitler. It's actually Richard Nixon.
“In fact, I like to tell my liberal friends at Stanford and Harvard that Donald Trump is Richard Nixon's revenge on you, because they have the same enemies – the New York Times, Harvard, the Department of Justice, the bureaucracy.
“But that's not all. They have the same approach to the geopolitical challenge that I've just described here.”
Tariffs won’t work
Ferguson said the tariffs would be borne by consumers, leading to further inflation.
“What seems highly unlikely to me is that these tariffs will have the effect of increasing industrial investment in the United States,” he said.
Ferguson described the global trading system as “astonishingly complex”.
“What I can predict with very high confidence is that this network will very rapidly readjust to the new trade barriers of US policy, so that the revenues from tariffs will likely diminish as Chinese goods find new ways to get to the United States through third and fourth intermediaries,” he said.
“All the tariffs in the world, all the reciprocal tariffs that Donald Trump can dream up, won't reduce the US current account deficit if we continue to run budget deficits of around 6% or 7% of GDP.
“If you look very closely at the Big Beautiful Bill, the great budgetary measure that passed Congress before the summer, it does nothing to fix the trajectory of US public debt – if anything, it makes it somewhat worse, although tariff revenues offset some of the additional tax cuts that just happened.”
Ferguson said the main consequences of Trumponomics were cheaper oil and a weaker US dollar.
“From the rest of the world's point of view, the prospect of a weaker dollar is very nerve wracking indeed,” he said.
Geopolitical rumblings
“The geopolitical problem is that Donald Trump does not have the option that Richard Nixon had,” Ferguson said.
“Richard Nixon had the option to exploit the Sino-Soviet split. There is no visible Russia-China split anywhere to be seen in the world today.”
Instead, Ferguson said, Trump “beat up on his allies”.
“I have to feel a little sorry for Europe's leaders these days as they get pulled into the Oval Office for the political equivalent of reality TV – they are reduced to supplicants, ring kissers,” he said.
“The problem is that President Trump, no matter how hard he tries, doesn't seem able to stop President Putin from a waging war on Ukraine.
“The prospects of peace are growing more remote because Putin thinks he can win, and he thinks he could win because we, at no point, have been serious about applying economic pressure to Russia.”
Americans supportive of confrontation
Ferguson pointed to a poll last year which suggested Americans were supportive of military action in the event of a Chinese blockade of Taiwan.
“People underestimate, I think, the extent of anti-Chinese sentiment in this country, and what that could lead to,” he said.
“The problem is that, from a military standpoint, a Taiwan semiconductor crisis would be extraordinarily dangerous for the very simple reason that the United States lacks the reserves of military hardware that It would need for a state a sustained conflict with the world's number one industrial superpower.”
Ferguson estimates that the US would run out of long-range, anti-ship missiles in a week.
Taiwan Semiconductor Manufacturing Company owns the world's largest dedicated semiconductor foundry.
“If there were a war over Taiwan, it would have an equivalent economic effect to the 1973 war between Israel and the Arab states, and just as that produced the great oil price shock that led to the stagflation nightmare of 1973 to 1979, this would be an equivalent shock through the semiconductor channel,” Ferguson said.
“It would be silicon, not oil, that would become the problem for the entire global economy.”
Ferguson said the gold price would outperform in the event of a conflict.
“The scenario that comes to mind as we reflect on Donald Trump's Nixonian tendencies, the vulnerability of the United States, not only domestically, but internationally, its fiscal problems and the implications of a weak dollar policy, the only thing that's currently missing, the only ingredient that's lacking to give you the 1970s reheated and served up again, is the kind of geopolitical crisis that struck in 1973,” he said.
“Most people would consider that scenario with dread. It's kind of strange to be in a room full of people who might actually think it was a massive home run.”